Why Simple, The Startup That Was Going To Change Banking Forever, Sold Out To A Big Bank

Tuesday

Feb 25, 2014 at 9:01 PM

Dylan Love

Portland, Ore.'s Simple is a retail banking startup that effectively replaces your bank, providing you with a debit card, free access to thousands of ATMs, and a really sharp smartphone app to help manage your money.

The company earned rave reviews (including one from Business Insider), and was repeatedly hailed as the future of banking after it was founded in 2009.

But Simple made headlines last week when it sold for $117 million to Spanish banking company BBVA, which maintains the second-largest bank in Spain. In a world of multi-billion-dollar tech acquisitions, this one seemed underwhelming. Digital payments, in particular, are a white-hot area right now in startup valuations. Square, for instance, is valued at $5 billion. Simple is potentially bigger than Square because there are more people in need of personal banking than there are those who run small businesses.

And yet the company bowed out for just under eight times what its investors had plowed into it — $15 million.

What happened? Why did it sell before it made any serious waves?

Simple CEO Josh Reich explained it to us over the phone: "We had an investor presentation in June or July of 2010. My co-founder Shamir went to San Francisco to give his usual speech on what we're up to. In the audience was Francisco Gonzales, Chairman of BBVA. He asked Shamir some pointed questions about financial technology and must have liked the answers, because later he sent Shamir a handwritten letter asking to stay in touch."

Very early in Simple's existence, the two companies were already aware of each other.

Reich says that BBVA and Simple shared very similar outlooks on the banking industry — BBVA has "a top-down mandate to transform banking" and Simple uses technology to tackle problems of consumer money management and bank-related customer service. At that point, Reich says the companies "began a long conversation that's been going on for two years on investment versus partnership."

Things came to fruition "in the past six months" — BBVA would acquire Simple with a $117 million cash transaction, but would leave the company largely independent and unchanged. BBVA would also be "injecting a significant amount of cash into the business, which lets [Simple] do some really awesome things."

Reich says the sale wasn't motivated by red numbers — "[Simple is] in a really good spot. There were some pieces that came out that said we were hurting financially, but this month will be our largest month in history."

Matt Harris is a Simple customer and early investor in the company who serves on its board of directors and will remain there after the sale. He says the sale makes sense and the companies are a fit for each other:

I’ve known the innovation team at BBVA for maybe three years. They came to visit me at my office in Union Square when I was at Village Ventures … They were impressive right off the bat … very senior support for doing stuff differently, very creative, huge global footprint, lots of capital. Since then I’ve seen them get involved with many/most of the leading companies in one way or another, though I think this is their first major acquisition since then. They seem earnest about their intention to keep Simple separate; as an example of that, they’ve asked me to stay on the board of directors. I’m optimistic.

As for any potential disappointment at the sale, Harris says, "I can tell you that I’m not disappointed. Anytime you can invest at a seven-figure valuation and sell at a nine-figure valuation without raising a lot of capital in between, it’s a good day ... The likelihood that Simple will have a global impact sooner as part of BBVA is much higher."

Dave Birch, a payments expert for Consult Hyperion, suggested three years ago that "a good strategy for banks would be to develop 'near-banks' (like Simple) to specific sectors ... I think the Simple guys built something great (disclosure: I have a Simple account) and it was inevitable that it would be acquired."

Birch says he wouldn't be "at all surprised to see the bigger banks develop portfolios of Simple-like propositions. Simple and [comparable banking solution] Moven target similar demographics, but there are plenty of others: the unbanked, prepaid card users, travelers, students, etc."

BBVA seems serious about its decision to let Simple run under its own steam after the healthy push from this sale. We asked Reich if that seemed weird, and he said, "I don't think they're nuts to let us keep doing our own thing. Our special brand of 'nuts' is a breath of fresh air in this industry."

It was "an easy decision" to sell, said Reich. "In my role as CEO, I'm responsible for a few core stakeholders, our employees, and our customers. Starting a bank was a crazy idea three or four years ago. What attracted customers was our vision. if we start chipping away at that, we're done."

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